SHARE   Share on Twitter Share on Facebook Email

The Limitations of Forward Guidance

This article examines forward guidance via news shocks to the monetary policy rule in a nonlinear New Keynesian model with an occasionally binding zero lower bound (ZLB) constraint on the policy rate. Three findings emerge: (1) The stimulative effect of forward guidance is small when the economy is in a deep recession or households expect a slow recovery; (2) News shocks are more stimulative than unanticipated shocks at and away from the ZLB; (3) Forward guidance can have longer and larger cumulative effects on output without increasing the variance of the news shocks by redistributing the news over longer horizons.

Read Full Text (399K)


Recently Viewed Series


Subscribe to our newsletter for updates on published research, data news, and latest econ information.
Name:   Email:  
Twitter logo Google Plus logo Facebook logo YouTube logo LinkedIn logo